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Lesaka (LSAK)

Filed: 10 May 18, 4:05pm

Exhibit 99.1

Net 1 UEPS Technologies, Inc. Reports Third Quarter 2018 Results

JOHANNESBURG, May 10, 2018 – Net 1 UEPS Technologies, Inc. (Nasdaq: UEPS; JSE: NT1) today released results for the third quarter fiscal 2018.

•  

Q3 2018 revenue of $163 million, 10% higher in USD and Fundamental EPS of $0.95 (including $0.52 fair valueadjustment related to Cell C investment);

  
•  

Q3 2018 cash flow from operations of $85.2 million;

  
•  

Reiterate FY 2018 constant currency FEPS guidance of at least $1.61 per share, excluding any fair value adjustments.

Based on recent public statements by the Minister for Social Development, the South African Post Office and SASSA, we look forward to being released from the social grants payment contract by the end of September 2018. This will allow us to refocus our considerable skills and experience in delivering commercially compelling services to the unbanked population of South Africa and in other emerging countries. Our organic growth developments, along with a number of new opportunities, will enhance the group’s future prospects as we close out on the social grants contract that has become a burden on the management and financial resources of the group. We believe that we are already the market leaders in terms of cost, scale and distribution in the provision of bank accounts, credit and insurance products in the market segments we serve, and we intend to further improve our product offering and our unmatched ability as the “last mile” service provider.

Summary Financial Metrics

  Three months ended March 31, 
        % change  % change 
  2018  2017  in USD  in ZAR 
(All figures in USD ‘000s except per share data)            
Revenue 162,721  147,944  10%  (1%)
GAAP net income 3,009  18,392  (84%) (85%)
Fundamental net income (1) 53,759  23,468  129%  109% 
GAAP earnings per share ($) 0.05  0.34  (84%) (86%)
Fundamental earnings per share ($) (1) 0.95  0.43  121%  101% 
Fully-diluted shares outstanding (‘000’s) 56,777  54,808  4%    
Average period USD/ ZAR exchange rate 11.95  13.22  (10%)   

  Nine months ended March 31, 
        % change  % change 
  2018  2017  in USD  in ZAR 
(All figures in USD ‘000s except per share data)            
Revenue 463,695  455,010  2%  (5%)
GAAP net income 32,114  61,665  (48%) (51%)
Fundamental net income (1) 100,656  71,859  40%  30% 
GAAP earnings per share ($) 0.57  1.15  (51%) (55%)
Fundamental earnings per share ($) (1) 1.77  1.34  32%  23% 
Fully-diluted shares outstanding (‘000’s) 56,842  53,088  7%    
Average period USD/ ZAR exchange rate 12.89  13.77  (6%)   

(1) Fundamental net income and earnings per share are non-GAAP measures and are described below under “Use of Non-GAAP Measures—Fundamental net income and fundamental earnings per share.” See Attachment B for a reconciliation of GAAP net income to fundamental net income and earnings per share.

Factors impacting comparability of our Q3 2018 and Q3 2017 results

 •  

Growth in insurance and lending businesses:Volume growth and operating efficiencies in our insurance and lending businesses during Q3 2018 resulted in an improved contribution to our financial inclusion revenue. However, operating income and operating margin during Q3 2018 was adversely impacted by investments to expand our financial services offering;

 •  

Ongoing contributions from EasyPay Everywhere:EPE revenue and operating income growth was driven primarily by the further expansion of our customer base driven by our ATM infrastructure;

 •  

Higher equity-accounted earnings related to DNI and Bank Frick:The acquisition of 49% of DNI and 35% of Bank Frick positively impacted our reported results by approximately $4.4 million, before amortization of intangible assets, net of deferred taxes;




 •  

Favorable impact from the weakening of the U.S. dollar against South African Rand:The U.S. dollar depreciated by 10% against the ZAR and 8% against the KRW during Q3 2018, which positively impacted our reported results;

 •  

Higher revenue from Masterpayment and severance payments:Masterpayment contributed higher revenues as a result of an increase in processing activities, particularly related to its crypto-currency processing launched in December 2017, which was offset by severance payments to two of its senior managers as a result of our mutual agreement to terminate their employment;

 •  

Non-cash impairment loss related primarily to Masterpayment intangible assets:We recorded an impairment loss of $19.9 million related to Masterpayment and Masterpayment Financial Services goodwill;

 •  

Indirect taxes refund in Korea:We received a refund of indirect taxes of approximately $2.5 million during Q3 2018 which positively impacted our reported results;

 •  

Regulatory changes in South Korea pertaining to fees on card transactions:The impact of changes to regulations governing the fees that may be charged on card transactions continues to adversely impact our revenues and operating income in South Korea as all parties in the payment process adapt to the new laws and renegotiate their respective positions in the marketplace;

 •  

Lower net interest income resulting from strategic investments:Interest income was $1.8 million lower due to cash utilized for strategic investments. Interest expense increased due to the South African lending facility we obtained in August 2017 and March 2018 to partially fund our investments.

“After years of uncertainty and litigation relating to the social services contract held by our subsidiary CPS, we now appear to have more clarity and are likely to be relieved of our constitutional obligations by September 2018, allowing us to dedicate all our energies, resources, products and distribution towards our strategy of providing financial inclusion services in South Africa and internationally,” said Herman Kotzé, CEO of Net1. “We planned appropriately for this eventuality, and the strides we have made and traction we have already gained, give us increased confidence that Net1 has never been better positioned to return to being a sustainable and profitable growth company on an international scale,” he concluded.

“For fiscal 2018, we anticipate our fundamental earnings per share to remain at least $1.61 per share excluding any fair value adjustments and in excess of $2.00 per share including fair value adjustments,” said Alex Smith, CFO of Net1. “Our guidance assumes a constant currency base of ZAR 13.62/ $1, a share count of 56.6 million shares, and a tax rate of between 34%-36%. For clarity, our guidance as always is on a constant currency basis,” he concluded.

Increase in Cell C carrying value

We have included the fair value adjustment in respect of our Cell C investment within fundamental earnings per share (under the line item “net unrealized income on asset available for sale, net of tax” on Attachment B) as we believe that the return on this significant investment made by the company needs to be factored into an assessment of our overall performance. The uplift in the fair value reflected in the Q3 results reflects the improving operational performance of Cell C during the period since our investment. On top of this investment return we are also starting to see the introduction of new product sets developed through collaboration between Cell C and Net 1 which should contribute to our operational performance in future periods. We will continue to provide guidance on fundamental earnings per share excluding the fair value adjustments.

Supplemental Presentation for Q3 2018 Results

A supplemental presentation for Q3 2018 will be posted to the Investor Relations page of our website – ir.net1.com one hour prior to our earnings call on Friday, May 11, 2018.

Results of Operations by Segment and Liquidity

Our operating metrics will be updated and posted on our website (www.net1.com).

South African transaction processing

Segment revenue was $73.5 million in Q3 2018, up 15% compared with Q3 2017 in USD, and 4% higher on a constant currency basis. The increase in segment revenue was primarily due to the continued growth in the number of EPE accounts as well as higher transaction revenue as a result of increased usage of our ATMs. Operating income decreased however, primarily due to an increase in inter-segment charges, the impact of annual salary increases granted to our South African employees in October 2017, increases in goods and services purchased from third parties and declining profitability at CPS given the fact that its monthly fee per grant recipient has been fixed for the last six years. Our operating income margin for Q3 2018 and 2017 was 17% and 24%, respectively.

International transaction processing

Segment revenue of $46.2 million grew modestly during Q3 2018 compared with Q3 2017, due to an increase in processing activities, particularly related to Masterpayment’s crypto-currency processing launched in December 2017. Operating income during Q3 2018 was adversely impacted by the impairment loss, lower operating income generated in Korea as a result of the impact on us of changes to regulations governing the fees that may be charged on card transactions and severance payments to Masterpayment managers, partially offset by an ad hoc refund of indirect taxes of $2.5 million in Korea. Operating (loss) income margin for Q3 2018 and 2017 was (32%) and 5%, respectively. Excluding the Masterpayment impairment and the refund of indirect taxes, segment operating income and margin were $2.4 million and 5% respectively.


Financial inclusion and applied technologies

Segment revenue was $59.6 million in Q3 2018, up 5% compared with Q3 2017 in USD and down 5% on a constant currency basis. Financial inclusion and applied technologies revenue decreased primarily due to fewer prepaid airtime and other value added services sales, partially offset by increased volumes in our insurance and lending businesses, and an increase in inter-segment revenues. Operating income was also impacted by these factors as well as an increase in the allowance for doubtful finance loans receivable resulting from a commensurate increase in our lending book.

Operating income margin for the Financial inclusion and applied technologies segment was stable at 25% during each of Q3 2018 and 2017, respectively, and was impacted by fewer low margin prepaid product sales, improved revenues from our insurance businesses and an increase in inter-segment revenues, offset by annual salary increases granted to our South African employees.

Corporate/eliminations

Our corporate expenses have decreased primarily due to lower transaction-related expenditures and lower executive compensation, which was partially offset by a modest increase in ZAR denominated goods and services purchased from third parties and directors’ fees.

Cash flow and liquidity

At March 31, 2018, our cash and cash equivalents were $87.2 million and comprised mainly ZAR-denominated balances of ZAR 528.3 million ($44.7 million), KRW-denominated balances of KRW 32.7 billion ($30.8 million), U.S. dollar-denominated balances of $4.7 million, and other currency deposits, primarily Botswana pula, of $7.0 million, all amounts translated at exchange rates applicable as of March 31, 2018. The decrease in our cash balances from June 30, 2017, was primarily due to our investments in DNI, Bank Frick, Cell C and a $9.0 million listed note, scheduled repayments of our South African long-term debt, unscheduled repayment of Korean debt in full, growth in our South African lending book, and capital expenditures, which were partially offset by cash generated by most of our core businesses.

Excluding the impact of interest received, interest paid under our Korean and South Africa debt and taxes, the increase in operating cash flow relates primarily to the receipt of certain working capital loans outstanding, offset partially by the expansion of our South African lending book and weaker trading activity. Capital expenditures for Q3 2018 and 2017 were $4.2 million and $1.9 million, respectively, and increased primarily due to the acquisition of data processing computer equipment and payment processing terminals in Korea and ATMs in South Africa. We also paid approximately $11.1 million for an additional 5% interest in Bank Frick, provided a $10.6 million (ZAR 126.0 million) loan to DNI and paid $7.5 million (ZAR 89.3 million) for an additional 4% interest in DNI. Finally, we made a scheduled South African debt facility payment of $17.7 million (ZAR 187.5 million) and also utilized this facility to fund our additional investment in DNI. We also utilized $9.8 million of our overdraft facilities and repaid $42.6 million of our European facilities.

Use of Non-GAAP Measures

US securities laws require that when we publish any non-GAAP measures, we disclose the reason for using the non-GAAP measure and provide reconciliation to the directly comparable GAAP measure. The presentation of fundamental net income and fundamental earnings per share and headline earnings per share are non-GAAP measures.

Fundamental net income and fundamental earnings per share

Fundamental net income and earnings per share is GAAP net income and earnings per share adjusted for the amortization of acquisition-related intangible assets (net of deferred taxes), the amortization of intangible assets (net of deferred taxes) related to equity-accounted investments, stock-based compensation charges (reversals), the amortization of South African and Korean debt facility fees and unusual non-recurring items, including costs related to acquisitions and transactions consummated or ultimately not pursued.

Fundamental net income and earnings per share for fiscal 2018 also includes the Cell C fair value adjustment (net unrealized income on asset available for sale, net of tax), as well as adjustments for an impairment loss, an allowance for doubtful working capital finance receivables, refund of indirect taxes in Korea, the impact of changes in tax laws in the U.S and a gain realized on the sale of XeoHealth. Fundamental net income and earnings per share for fiscal 2017 also includes adjustments for a refund (net of taxes) related to Korean industry-wide litigation and US government investigations-related expenses.

Management believes that the fundamental net income and earnings per share metric enhances its own evaluation, as well as an investor’s understanding, of our financial performance. Attachment B presents the reconciliation between GAAP and fundamental net income and earnings per share.


We provide earnings guidance only on a non-GAAP basis and do not provide a reconciliation of forward-looking fundamental earnings per share guidance to the most directly comparable GAAP financial measures because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, the amounts of which, based on past experience, could be material.

Headline earnings per share (“HEPS”)

The inclusion of HEPS in this press release is a requirement of our listing on the JSE. HEPS basic and diluted is calculated using net income which has been determined based on GAAP. Accordingly, this may differ to the headline earnings per share calculation of other companies listed on the JSE as these companies may report their financial results under a different financial reporting framework, including but not limited to, International Financial Reporting Standards.

HEPS basic and diluted is calculated as GAAP net income adjusted for the impairment loss and (profit) loss on sale of property, plant and equipment. Attachment C presents the reconciliation between our net income used to calculate earnings per share basic and diluted and HEPS basic and diluted and the calculation of the denominator for headline diluted earnings per share.

Conference Call

We will host a conference call to review these results on May 11, 2018, at 8:00 a.m. Eastern Time. To participate in the call, dial 1-508-924-4326 (US and Canada), 0333-300-1418 (U.K. only) or 010-201-6800 (South Africa only) ten minutes prior to the start of the call. Callers should request “Net1 call” upon dial-in. The call will also be webcast on the Net1 homepage, www.net1.com. Please click on the webcast link at least ten minutes prior to the call. A webcast of the call will be available for replay on the Net1 website through June 2, 2018.

About Net1 (www.net1.com)

Net1 is a leading provider of alternative payment systems that leverage its Universal Electronic Payment System (“UEPS”) or utilize its proprietary mobile technologies. The Company operates market-leading payment processors in South Africa and the Republic of Korea. Net1 offers debit, credit and prepaid processing and issuing services for Visa, MasterCard, ChinaUnionPay, Alipay and WeChat across Asia-Pacific, including China, Europe, Africa, and the United States.

UEPS permits the Company to facilitate biometrically secure, real-time electronic transaction processing to unbanked and under-banked populations of developing economies around the world in an online or offline environment. Net1’s UEPS/EMV solution is interoperable with global EMV standards that seamlessly enable access to all the UEPS functionality in a traditional EMV environment. In addition to payments, UEPS can be used for banking, healthcare management, payroll, remittances, voting and identification.

Net1’s mobile technologies include its proprietary mobile payments solution - MVC, which offers secure mobile-based payments, as well as mobile banking and prepaid value-added services in developed and emerging countries.

Net1 has a primary listing on the NASDAQ and a secondary listing on the Johannesburg Stock Exchange.

Forward-Looking Statements

This announcement contains forward-looking statements that involve known and unknown risks and uncertainties. A discussion of various factors that cause our actual results, levels of activity, performance or achievements to differ materially from those expressed in such forward-looking statements are included in our filings with the Securities and Exchange Commission. We undertake no obligation to revise any of these statements to reflect future events.

Investor Relations Contact:

Dhruv Chopra
Head of Investor Relations
Phone: +1 917-767-6722
Email:dchopra@net1.com

Media Relations Contact:

Bridget von Holdt
Business Director – Burson-Marsteller South Africa
Phone: +27-82-610-0650
Email: bridget.vonholdt@bm-africa.com



  Three months ended  Nine months ended 
  March 31,  March 31, 
  2018  2017  2018  2017 
  (In thousands, except per share data)   (In thousands, except per share data)  
REVENUE$ 162,721 $ 147,944 $ 463,695 $ 455,010 
EXPENSE            
         Cost of goods sold, IT processing, servicing and support 77,860  70,912  226,506  219,210 
         Selling, general and administration 48,091  42,195  141,417  122,366 
         Depreciation and amortization 9,341  10,290  27,030  31,117 
         Impairment loss 19,865  -  19,865  - 
OPERATING INCOME 7,564  24,547  48,877  82,317 
INTEREST INCOME 5,154  5,124  14,903  14,489 
INTEREST EXPENSE 2,426  467  6,872  1,773 
INCOME BEFORE INCOME TAX EXPENSE 10,292  29,204  56,908  95,033 
INCOME TAX EXPENSE 10,941  10,233  31,280  32,320 
NET (LOSS) INCOME BEFORE EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS
 (649) 18,971  25,628  62,713 
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS 3,960  45  7,389  778 
NET INCOME 3,311  19,016  33,017  63,491 
LESS NET INCOME ATTRIBUTABLE TO NON- CONTROLLING INTEREST 302  624  903  1,826 
NET INCOME ATTRIBUTABLE TO NET1$ 3,009 $ 18,392 $ 32,114 $ 61,665 
Net income per share, in U.S. dollars            
         Basic earnings attributable to Net1 shareholders$0.05 $0.34 $0.57 $1.16 
         Diluted earnings attributable to Net1 shareholders$0.05 $0.34 $0.56 $1.16 


NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets

  Unaudited  (A) 
  March 31,  June 30, 
  2018  2017 
  (In thousands, except share data) 
ASSETS        
CURRENT ASSETS      
     Cash and cash equivalents$ 87,172 $ 258,457 
     Pre-funded social welfare grants receivable 4,643  2,322 
     Accounts receivable, net of allowances of – March: $966; June: $1,255 120,664  111,429 
     Finance loans receivable, net of allowances of – March: $17,622; June: $7,469 76,916  80,177 
     Inventory 11,808  8,020 
     Deferred income taxes -  5,330 
             Total current assets before settlement assets 301,203  465,735 
                     Settlement assets 394,138  640,455 
                             Total current assets 695,341  1,106,190 
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of –
March: $145,163; June: $120,212
 31,592  39,411 
EQUITY-ACCOUNTED INVESTMENTS 185,023  27,862 
GOODWILL 182,534  188,833 
INTANGIBLE ASSETS, net of accumulated amortization of – March: $126,533 ; June: $108,907 31,428  38,764 
DEFERRED INCOME TAXES 3,363  - 
OTHER LONG-TERM ASSETS, including reinsurance assets 271,185  49,696 
     TOTAL ASSETS 1,400,466  1,450,756 
LIABILITIES        
CURRENT LIABILITIES      
     Short-term credit facilities 3,400  16,579 
     Accounts payable 16,995  15,136 
     Other payables 43,001  34,799 
     Current portion of long-term borrowings 56,446  8,738 
     Income taxes payable 14,502  5,607 
             Total current liabilities before settlement obligations 134,344  80,859 
                     Settlement obligations 394,138  640,455 
                             Total current liabilities 528,482  721,314 
DEFERRED INCOME TAXES 17,789  11,139 
LONG-TERM BORROWINGS 19,008  7,501 
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities 2,901  2,795 
     TOTAL LIABILITIES 568,180  742,749 
COMMITMENTS AND CONTINGENCIES      
REDEEMABLE COMMON STOCK 107,672  107,672 
EQUITY        
     COMMON STOCK      
                 Authorized: 200,000,000 with $0.001 par value; 
                 Issued and outstanding shares, net of treasury - March: 56,855,187; 
                 June: 56,369,737
 80  80 
     PREFERRED STOCK      
                 Authorized shares: 50,000,000 with $0.001 par value; 
                 Issued and outstanding shares, net of treasury: March: -; June: -
 -  - 
     ADDITIONAL PAID-IN-CAPITAL 275,536  273,733 
     TREASURY SHARES, AT COST: March: 24,891,292; June: 24,891,292 (286,951) (286,951)
     ACCUMULATED OTHER COMPREHENSIVE LOSS (73,481) (162,569)
     RETAINED EARNINGS 805,390  773,276 
             TOTAL NET1 EQUITY 720,574  597,569 
             NON-CONTROLLING INTEREST 4,040  2,766 
                     TOTAL EQUITY 724,614  600,335 
       
                             TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$ 1,400,466 $ 1,450,756 

(A) – Derived from audited financial statements During Q2, 2018, we reclassified redeemable common stock out of total equity because redeemable common stock is required to be presented outside of permanent equity. We have restated these amounts in our unaudited condensed consolidated balance sheet as at June 30, 2017. Total equity has decreased by approximately $107.7 million and we have presented the approximately $107.7 million redeemable common stock outside of permanent equity. This reclassification has no impact on the Company’s previously reported consolidated income, comprehensive income or cash flows.


NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows

  Three months ended  Nine months ended 
  March 31,  March 31, 
  2018  2017  2018  2017 
  (In thousands)  (In thousands) 
Cash flows from operating activities            
Net income$ 3,311 $ 19,016 $ 33,017 $ 63,491 
Depreciation and amortization 9,341  10,290  27,030  31,117 
Earnings from equity-accounted investments (3,960) (45) (7,389) (778)
Interest on Cedar Cellular note (587) -  (769) - 
Fair value adjustments (110) (50) (209) (61)
Interest payable (17) 75  (264) 84 
Facility fee amortized 120  27  467  94 
(Profit) Loss on disposal of property, plant and equipment (50) (98) 71  (571)
Profit on disposal of business -  -  (463) - 
Stock-based compensation charge (reversal), net 575  621  2,010  (68)
Dividends received from equity-accounted investments 1,946  -  4,111  370 
Impairment loss 19,865  -  19,865  - 
Decrease (Increase) in accounts receivable, pre-funded social
welfare grants receivable and finance loans receivable
 42,558  (16,612) 9,422  (2,261)
Decrease (Increase) in inventory 1,072  3,893  (2,776) 308 
Increase (Decrease) in accounts payable and other payables 2,827  (1,486) 5,775  (4,386)
Decrease in taxes payable 9,007  6,678  8,091  5,819 
Decrease in deferred taxes (653) (506) (225) (1,752)
   Net cash provided by operating activities 85,245  21,803  97,764  91,406 
Cash flows from investing activities            
Capital expenditures (4,225) (1,949) (7,801) (8,498)
Proceeds from disposal of property, plant and equipment 160  330  575  1,344 
Investment in Cell C -  -  (151,003) - 
Investment in equity of equity-accounted investments (18,597) -  (132,335) - 
Loans to equity-accounted investments (10,635) (2,000) (10,635) (12,044)
Acquisition of held to maturity investment -  -  (9,000) - 
Investment in MobiKwik -  -  -  (15,347)
Acquisitions, net of cash acquired -  -  -  (4,651)
Other investing activities -  -  (154) - 
Net change in settlement assets 43,222  (165,945) 280,390  54,827 
   Net cash provided by (used in) investing activities 9,925  (169,564) (29,963) 15,631 
Cash flows from financing activities            
Long-term borrowings utilized 17,726  274  113,157  521 
Repayment of long-term borrowings (15,826) -  (60,967) (28,493)
Repayment from bank overdraft (42,650) -  (56,993) - 
Proceeds of bank overdraft 9,802  -  42,372  - 
Guarantee fee paid (202) -  (754) (1,145)
Proceeds from issue of common stock -  45,629  -  45,629 
Acquisition of treasury stock -  -  -  (32,081)
Dividends paid to non-controlling interest -  -  -  (613)
Net change in settlement obligations (43,222) 165,955  (280,390) (54,817)
   Net cash (used in) provided by financing activities (74,372) 211,858  (243,575) (70,999)
Effect of exchange rate changes on cash 1,478  4,719  4,489  8,025 
Net increase (decrease) in cash, cash equivalents andrestricted cash 22,276  68,816  (171,285) 44,063 
Cash, cash equivalents and restricted cash – beginning ofperiod 64,896  198,891  258,457  223,644 
Cash, cash equivalents and restricted cash – end of period (1)$ 87,172 $ 267,707 $ 87,172 $ 267,707 

(1) Cash, cash equivalents and restricted cash as of March 31, 2017, includes restricted cash of approximately $44.7 million related to the guarantee issued by FirstRand Bank Limited (acting through its Rand Merchant Bank division). This cash was placed into an escrow account and was considered restricted as to use and therefore was classified as restricted cash. The restriction lapsed upon expiry of the guarantee.


Net 1 UEPS Technologies, Inc.

Attachment A

Operating segment revenue, operating income and operating margin:

Three months ended March 31, 2018 and 2017 and December 31, 2017

                 Change – 
                 constant 
           Change - actual  exchange rate(1)
           Q3 ‘18  Q3 ‘18  Q3 ‘18  Q3 ‘18 
Key segmental data, in ’000, except
margins
 Q3 ‘18  Q3 ‘17  Q2 ‘18  vs
Q3‘17
  vs
Q2 ‘18
  vs
Q3‘17
  vs
Q2‘18
 
Revenue:                     
South African transaction processing$73,508 $63,967 $64,148  15%  15%  4%  0% 
International transaction processing 46,240  41,514  44,185  11%  5%  1%  (9%)
Financial inclusion and applied
technologies
 59,574  56,881  54,131  5%  10%  (5%) (4%)
         Subtotal: Operating segments 179,322  162,362  162,464  10%  10%  (0%) (4%)
         Intersegment eliminations (16,601) (14,418) (14,048) 15%  18%  4%  3% 
                 Consolidated revenue$162,721 $147,944 $148,416  10%  10%  (1%) (4%)
                      
Operating income (loss):                     
South African transaction processing$12,719 $15,531 $13,470  (18%) (6%) (26%) (17%)
International transaction processing (14,892) 1,968  (4,991) (857%) 198%  (784%) 161% 
Financial inclusion and applied
technologies
 14,968  14,064  12,737  6%  18%  (4%) 3% 
         Subtotal: Operating segments 12,795  31,563  21,216  (59%) (40%) (63%) (47%)
         Corporate/Eliminations (5,231) (7,016) (4,909) (25%) 7%  (33%) (7%)
                 Consolidated operatingincome$7,564 $24,547 $16,307  (69%) (54%) (72%) (59%)
                      
Operating income margin (%)                     
South African transaction processing 17%  24%  21%             
International transaction processing (32%) 5%  (11%)            
Financial inclusion and applied
technologies
 25%  25%  24%         
         Consolidated operating margin . 5%  17%  11%             

(1)– This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during the Q3 2018 also prevailed during Q3 2017 and Q2 2018.


Nine months ended March 31, 2018 and 2017

           Change – 
           constant 
        Change -  exchange 
        actual  rate(1)
        F2018  F2018 
        vs  vs 
Key segmental data, in ’000, except margins F2018  F2017  F2017  F2017 
Revenue:            
South African transaction processing$204,093 $181,397  13%  5% 
International transaction processing 136,447  131,704  4%  (3%)
Financial inclusion and applied technologies 168,018  179,681  (6%) (12%)
         Subtotal: Operating segments 508,558  492,782  3%  (3%)
         Intersegment eliminations (44,863) (37,772) 19%  11% 
                 Consolidated revenue$463,695 $455,010  2%  (5%)
             
Operating income:            
South African transaction processing$38,521 $44,451  (13%) (19%)
International transaction processing (14,567) 11,689  (225%) (217%)
Financial inclusion and applied technologies 41,625  43,354  (4%) (10%)
         Subtotal: Operating segments 65,579  99,494  (34%) (38%)
         Corporate/Eliminations (16,702) (17,177) (3%) (9%)
                 Consolidated operating income$48,877 $82,317  (41%) (44%)
             
Operating income margin (%)            
South African transaction processing 19%  25%       
International transaction processing (11%) 9%       
Financial inclusion and applied technologies 25%  24%       
         Overall operating margin 11%  18%       

(1)– This information shows what the change in these items would have been if the USD/ ZAR exchange rate that prevailed during the year to date of fiscal 2018 also prevailed during the year to date of fiscal 2017.

Earnings from equity-accounted investments:

The table below presents the relative earnings (loss) from our equity-accounted investments:

        %        % 
  Q3 2018  Q3 2017  change  F2018  F2017  change 
DNI$3,291 $-  nm $5,202 $-  nm 
       Share of net income 3,628  -  nm  6,868  -  nm 
       Amortization of intangible assets, net of deferred tax (337) -  nm  (1,666) -  nm 
Bank Frick 653  -  nm  975  -  nm 
       Share of net income 747  -  nm  1,234  -  nm 
       Amortization of intangible assets, net of deferred tax (94) -  nm  (259) -  nm 
Finbond -  -  nm  1,101  930  18% 
Other 16  45  (64%) 111  (152) (173%)
       Earnings from equity-accounted investments$3,960 $45  nm $7,389 $778  850% 


Net 1 UEPS Technologies, Inc.

Attachment B

Reconciliation of GAAP net income and earnings per share, basic, to fundamental net income and earnings per share, basic:

Three months ended March 31, 2018 and 2017

        EPS,        EPS, 
  Net income  basic  Net income  basic 
  (USD’000) (USD)  (ZAR’000) (ZAR) 
  2018  2017  2018   2017  2018  2017  2018  2017 
                         
GAAP 3,009  18,392  0.05  0.34    35,951  243,190  0.63  4.45 
                         
     Net unrealized income on asset 
     available for sale, net of tax
 29,366  -      350,863  -     
     Impairment loss 19,865  -        237,345  -       
     Intangible asset amortization, net . 2,268  2,772        27,096  36,653       
     Refund related to litigation 
     finalized in Korea, net
 (1,985) -      (23,717) -     
     Stock-based compensation charge 575  621        6,870  8,211       
     Intangible asset amortization, net 
     related to equity-accounted 
     investments
 431  -      10,701  -     
     Facility fees for debt 120  27        1,434  357       
     Transaction costs 110  1,439        1,314  19,027       
     US government investigations- 
     related and US lawsuit expenses
 -  217      -  2,869     
         Fundamental 53,759  23,468  0.95   0.43   647,857  310,307  11.40  5.68 

Nine months ended March 31, 2018 and 2017

        EPS,        EPS, 
  Net income  basic  Net income  basic 
  (USD’000) (USD)  (ZAR’000) (ZAR) 
  2018  2017  2018   2017   2018  2017  2018   2017  
                         
GAAP 32,114  61,665  0.57  1.15    414,058  849,009  7.29  15.82   
                         
     Net unrealized income on asset 
     available for sale, net of tax
 29,366  -      378,628  -     
     Impairment loss 19,865  -        256,128  -       
     Non-recurring Mastertrading 
     allowance for doubtful accounts
 7,803  -      100,607  -     
     Intangible asset amortization, net . 6,644  7,637        85,666  105,124       
     Transaction costs 2,050  2,928        26,432  40,313       
     Stock-based compensation charge 2,010  (68)       25,916  (936)      
     Refund of Korean indirect taxes (1,985) -        (25,593) -       
     Intangible asset amortization, net 
     related to equity-accounted investments
 1,925  -      17,835  -     
     Change in US tax rate 860  -        11,088  -       
     Profit on sale of Xeo (463) -        (5,970) -       
     Facility fees for debt 467  94        6,021  1,294       
     Refund related to litigation 
     finalized in Korea, net
 -  (643)     -  (8,853)    
     US government investigations- 
     related and US lawsuit expenses
 -  246      -  3,387     
         Fundamental 100,656  71,859  1.77  1.34    1,290,816  989,338  22.73  18.44   


Net 1 UEPS Technologies, Inc.

Attachment C

Reconciliation of net income used to calculate earnings per share basic and diluted and headline earnings per share basic and diluted:

Three months ended March 31, 2018 and 2017

  2018  2017 
       
Net income (USD’000) 3,009  18,392 
Adjustments:      
     Impairment loss 19,865  - 
     Profit on sale of property, plant and equipment (50) (98)
     Tax effects on above 14  27 
       
Net income used to calculate headline earnings (USD’000) 22,838  18,321 
Weighted average number of shares used to calculate net income per share basic
earnings and headline earnings per share basic earnings (‘000)
 56,716  54,639 
Weighted average number of shares used to calculate net income per share diluted
earnings and headline earnings per share diluted earnings (‘000)
 56,777  54,808 
Headline earnings per share:      
     Basic, in USD 0.40  0.34 
     Diluted, in USD 0.40  0.33 

Nine months ended March 31, 2018 and 2017

  2018  2017 
       
Net income (USD’000) 32,114  61,665 
Adjustments:      
     Impairment loss 19,865  - 
     Profit on sale of business (463) - 
     Profit on sale of property, plant and equipment (50) (571)
     Tax effects on above 14  160 
       
Net income used to calculate headline earnings (USD’000) 51,480  61,254 
Weighted average number of shares used to calculate net income per share basic
earnings and headline earnings per share basic earnings (‘000)
 56,788  52,961 
Weighted average number of shares used to calculate net income per share diluted
earnings and headline earnings per share diluted earnings (‘000)
 56,842  53,088 
Headline earnings per share:      
     Basic, in USD 0.91  1.16 
     Diluted, in USD 0.91  1.15 

Calculation of the denominator for headline diluted earnings per share

  Q3 ‘18  Q3 ‘17  2018  2017 
             
Basic weighted-average common shares outstanding and unvested
restricted shares expected to vest under GAAP
 56,716  54,639  56,788  52,961 
     Effect of dilutive securities under GAAP 61  169  54  127 
         Denominator for headline diluted earnings per share 56,777  54,808  56,842  53,088 

Weighted average number of shares used to calculate headline earnings per share diluted represent the denominator for basic weighted-average common shares outstanding and unvested restricted shares expected to vest plus the effect of dilutive securities under GAAP. We use this number of fully-diluted shares outstanding to calculate headline earnings per share diluted because we do not use the two-class method to calculate headline earnings per share diluted.